Thursday, April 17, 2008

Boy - do I need a way to forward price beans for 2009!..

Behold, a textbook demonstration of pricing power:
Desperate for fertilizer to increase crop yields amid a looming global food crisis, China agreed to pay more than three times as much for potash as it did last year, launching Potash Corp. of Saskatchewan to a record stock price and within spitting distance of becoming Canada's largest publicly traded company.

The unprecedented contract with China spurred a 5.5-per-cent increase in Potash Corp. shares on the Toronto Stock Exchange, increasing the Saskatoon-based company's market capitalization to nearly $63-billion.

The rise bolstered the dominance of resource stocks on the Canadian market, pushing Potash Corp.'s worth above financial services stalwarts Royal Bank of Canada and Manulife Financial and into second place behind oil and gas giant EnCana Corp., which boasts a market value of $63.8-billion.

“We've moved up the TSX quite quietly,” said Potash Corp. spokeswoman Rhonda Speiss. The company's stock has gained 186 per cent in the past year on the strength of an international agriculture boom driven by increased consumption of meat in the developing world.

Demand for potash, a key component of fertilizer, has outstripped supply.

Although China is the world's largest potash buyer, consuming roughly eight million tonnes a year, it had little leverage in this year's price negotiations and was forced to swallow an increase of $400 (U.S.) a tonne.

The 2008 contract, signed with Canpotex Ltd., the marketing company owned by Canada's top potash miners, including Potash Corp., calls for China to pay $576 a tonne for potash, compared with the $176 it paid in 2007. The price does not include shipping costs.
Yesterday I had a farm manager call me to discuss pre-paying NH3 for this fall. It's all the rage with supply coops around central Illinois, I gather. But I wonder at the reason. As my supplier said, N may be the last input to worry about. Judging by this story, I agree.

But we're not far away from $500/A fertilizer costs next year [Update: Make that about $350/A - I got a little hyper on that one. (200N, 200 DAP, 300 Potash) (see Chris's comment)]: $900 NH3, $1300 DAP (wild guess based on $1100 wholesale), $800 Potash (wilder yet). Do the depressing math. And it is rumored seed prices are going up by a whacking percent.

Another admittedly speculative reason might be a desperate need for coops to get
working capital. As CoBank funds have been sucked up holding margin calls, supply/grain coops could be looking to operate on farmer money.
This makes elevators cash-poor - something cooperatives understand, said CoBank General Manager John McClelland.

"They've been unbelievable to the point of being heroic," McClelland said of CoBank's lending to many cooperatives through the tight times. "No one anticipated this happening."

Dean Moreau, the western regional president of CoBank's Agribusiness Banking Group, told a group of elevator managers at the KFSA annual meeting Sunday that these days, it seemed, they were getting multimillion-dollar requests in the morning for funds needed by that afternoon. [More]
The significant and growing risk for this is one more move up in corn and more margin calls, which pushes many dealers into liquidation mode and suddenly your prepay is an unsecured debt.

I've been wondering how our national fiscal impropriety would play out on my farm. I think I have a glimpse. Our money will become steadily worth less raising our costs even as we are paid more in the same lightweight currency.
Jeez - it's like we're some banana republic where the political leadership is supposed to be democratically elected, but always ends up being a relative of the last bozo.


[Thanks, Wes]

[Update: Not really sure what happened with my font on this post. Not enough time to fuss with it. Sorry for the "shouting"]


Unknown said...

What is the math to get to $500/acre fertilizer prices? If corn is $6 how much would the average farmer bring in per acre?

John Phipps said...


Good catch - I didn't do the math myself. My bad. Please see the update.

One thing I can think of: put on less fertilizer. I think strip till could see new interest.

The other winning strategy: inherit the ground.

Ol James said...

I believe I would start making nice to the dairy and poultry and pork farmers. "Manure the other fertilizer". I can just see the ads now.
Now some savvy investor is going to corner the market on manure and process it thru a digester, while providing power from a generator that runs off of the Methane. Then from a holding tank where the unused portion is pumped they will dry it out or use it as liquid fertilizer. The sludge that remains will be processed further to extract all the minerals possible. The rest either dried out to make cardboard planting pots or incinerated to produce an ash, which will be spread on fields.
I think I would also print out some waiver agreements for the neighbors to sign, so they won't complain about the smell.
Just goes to show you..if you have a dollar there is somebody that wants it, and more.